Australia's Gorgon Project Secures $129 Billion Gas-Supply Deal From China, Korea and Japan

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Gorgon gas fields project, promoted by a consortium led by Chevron Corporation (NYSE:CVX) (San Ramon, California), has secured long-term liquefied natural gas (LNG) export contracts from Korea, Japan and China. The $37.1 billion project, considered to be Australia's biggest natural resources development initiative, will supply 1.5 million tons per year of LNG to Korea Gas Corporation (SEO:036460) (Gyeonggi-Do, South Korea) for a period of 15 years. The contract, which has been valued at $25.88 billion, will have a provision for five-year extensions. Chevron holds a 50% stake in the Gorgon gas project, while Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) and Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) each hold stakes of 25%.

The project also has secured contracts with a combined value of $60.39 billion to export LNG to Osaka Gas Company Limited (TYO:9532) (Osaka, Japan), GS Caltex Corporation (Seoul, South Korea), and Tokyo Gas Company Limited (TYO:9531) (Tokyo, Japan). As part of this agreement, GS Caltex will buy 500,000 tons per year of LNG from the Gorgon gas fields over a 20-year period, while Tokyo Gas and Osaka Gas are expected to import 1.375 million tons per year and 1.1 million tons per year, respectively, for a period of 25 years. Project sources have indicated that Tokyo Gas and Osaka Gas also may take stakes of 1% and 1.25%, respectively, in the Gorgon project. This would reduce Chevron's holding in the project from 50% to 47.75%. PetroChina Company Limited (NYSE:PTR) (Beijing, China), also has signed a $43 billion agreement to import gas from the project.

The Gorgon gas fields project, located 130 kilometers off the northwestern coast of Australia, will involve development of the Maenad, Chandon, Gorgon, Chrysaor, Orthrus, Eurytion, Geryon, Dionysus, Janzlo, Urania and West Tryl rocks. The fields have combined natural gas reserves of about 40 trillion cubic feet. This region is commonly referred to as the "North West Shelf." The project will consist of several facilities, including three LNG trains, spread across 300 hectares of land on Barrow Island. Initially, 18 wells will be drilled in the Janzlo and Gorgon fields. The wellheads then will pump natural gas from the deposits on the seabed and transfer gas through an undersea pipeline network to the cooling and liquefaction facility on Barrow Island.

The Australian government took time to give approval for the Gorgon project, since it faced opposition from environmental activists. The location of the processing facility at Barrow Island, a natural preserve consisting of coral reefs, endangered turtle species and natural termite mounds, was met with stiff opposition. Barrow Island is strategically located to cater to the growing LNG demand in India, Korea, China and Japan.

Construction activity on the gas fields is set to begin by February, with the first supply of LNG expected by early 2014. Industry experts have observed that with these agreements, the Gorgon project has secured exports of about 5.5 million tons per year. The Chevron-led consortium is talks with other Chinese firms to finalize delivery of the balance 9.5 million to 10 million tons per year of output from this project. Upon commencing 100% production and delivery, the Gorgon project is estimated to fulfill about 8% of the global LNG demand.

The project is expected to create about 10,000 jobs during the construction phase, as well as 3,500 to 4,000 jobs in the steel sector. About 260,000 tons of steel will be required to build the facilities, platforms, pipelines and allied infrastructure. The project is expected to contribute about $257 billion to the federal reserves over a 40-year period. The Gorgon gas fields project also will become the world's largest experiment in carbon sequestration. Using this method, carbon dioxide released from the gas fields will be stored in underground reservoirs at Barrow Island. The project is estimated to cost about $870 million.

According to The International Energy Outlook, published by the U.S. Energy Information Administration, global natural gas consumption is forecast to reach 153 trillion cubic feet by 2030, with the industrial and power sectors consuming 40% and 35%, respectively. To meet the growing demand for natural gas, suppliers would have to increase production by at least 48 trillion cubic feet.

The Gorgon gas project is one of the 12 natural gas projects proposed in Papua New Guinea and Australia. Energy sector analysts have forecast that during the next decade, Australia, which ranks sixth in the list of top LNG exporters, has the potential to become one of the largest LNG exporters in the world.

For related news item, see September 18, 2009, article - KBR-Led Joint Venture Secures $2.3 Billion EPCM Contract for Gorgon LNG Project.

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